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Perhaps The BIS Can Share Its Next "Debt Trap" Warnings With Its Own Board Of Directors First
Lately, not a month passes without the IMF, or the G-20, or the BIS or the Fed itself issuing some warning about asset bubbles, systemic bank-runs, excessive risk taking, "levitating markets", and yet the second the market almost enters correction territory, some Fed official, such as James Bullard for example. will "utter" a flashing red headline reminding the "market" it doesn't actually exist and is merely a centrally-planned policy vehicle designed to stimulate the wealth effect: drop more and we unleash QEX+1. End result: one after another 10% surge such as that in the past month, which prevents even the chance at true price discovery ex-central bankers.
Yet, to keep the farce going, once the "market" hits its the upper bound of its trading corridor, the theater restarts as the same people who a few days ago said more easing is imminent, now demand a halt to that easing! Much to the amazement of anyone with a frontal lobe, and what should be his humiliation, James Bullard did just that earlier today.
And in case that was not enough, here is the BIS once again with its noble - and now thoroughly 'Austrian' - public service announcement, this time warning about the implications of a global "debt trap" and how everything will end in tears (stop us when this becomes familiar).
From a Luncheon speech by Jaime Caruana, General Manager at the Bank for International Settlements during the International Finance Forum 2014 Annual Global Conference in Beijing, on 1 November 2014 (source)
Debt trouble comes in threes
In my introduction, I said that the debt trouble comes in threes. At the origin is the build-up of financial imbalances that leads to excessive credit growth. What are the three types of trouble?
The first and the most obvious: the build-up of financial imbalances risks a future financial crisis, an impaired financial sector and a debt overhang.
The leverage that builds up during the boom weakens balance sheets, which reduces borrowers’ capacity to repay and their resiliency to shocks. This vulnerability, in turn, magnifies creditors’ losses, amplifies market participants’ responses and contributes to generating market dynamics that are abrupt and non-linear. Relatively small declines in asset prices can force borrowers to cut back their activities, and in some cases default or reschedule their debts, which is costly for lenders and a potential drag on borrowers’ finances. We have seen this type of effect most recently in response to the sharp falls in house prices in countries such as the United States, Spain and Ireland. Similar adverse dynamics can occur if problems hit an overleveraged corporate sector, as several Asian economies learnt in the crises of the 1990s.
This excess sensitivity is just a symptom of the fact that leverage increases procyclicality. Small downside shocks to the economy become transformed, through various channels, into large ones. But the seeds of the problems that materialise in the bust are in fact sown during the boom. There, the procyclicality operates on the upside: borrowers can expand their balance sheets and take on risks too easily, pushing up asset prices and making it easier still to borrow more. The boom sets the stage for the subsequent bust. History has taught us that large external debt is correlated with greater vulnerabilities and potentially sudden stops.
Indeed, research at the BIS has found that when private sector credit-to-GDP ratios are significantly above their long-term trend, banking strains are likely to follow within three years. And right now, a number of emerging economies, as well as some advanced ones, have reached this point in the financial cycle.
And the subsequent debt overhang holds back growth. Households and firms seek to pay back what turn out to be excessive debt burdens, built on the illusory promise of permanent prosperity that the boom had fostered. Expansionary aggregate demand policies lose effectiveness. And, unless the financial sector is fixed quickly, it restricts and, more importantly, misallocates credit: reluctance to take losses keeps credit available for the weaker borrowers and curtails or makes it more expensive for the healthier ones. The damage caused by delayed balance sheet repair following the bust of the boom in Japan is well documented.
The second, but less obvious, kind of trouble is that debt accumulation fosters misallocations of real resources.
The GDP and credit growth in the pre-crisis boom years were not evenly spread. They were concentrated disproportionately in specific sectors. For instance, in countries like Spain and Ireland, growth in the boom years was largely propelled by the construction sector as well as finance. Leverage can distort investment decision-making, giving incentives to put resources into projects that promise quick, measurable returns, rather than into longer-term ventures with less certain but potentially more valuable rewards. Such incentives are arguably stronger when leverage is cheap.
The consequence of this association between debt accumulation and real resource misallocation is important. When boom turns to bust, the bloated sectors will have to shrink. Reviving growth in this kind of recession requires flexibility and capacity in the economy to reallocate resources efficiently from less productive to more productive sectors.
Third, financial booms mask deficiencies in the real economy.
Credit booms can act as a smokescreen. They tend to mask the sectoral misallocations that I just described, making it difficult to detect and prevent these misallocations in time. Boom times also tend to hide other slow-moving forms of deterioration in real growth potential. One such example is the trend decline in productivity growth in the advanced economies that started decades ago. Arresting this decline is crucial to achieving sustainable economic growth. Additional examples are adverse demographics and the secular decline of job reallocation rates. What appears fantastically harmonious on the way up thanks to the flattering effect of the credit-driven boom becomes cacophony and fragmentation on the way down.
Conclusion
And so that’s why I said debt trouble comes in threes. The combination of these three types of debt-related phenomenon together with policies that neglect the power of financial cycles can give rise to serious risks in the long term. A sequence of such boom-bust cycles can sap strength from the global economy. And polices – fiscal, monetary and prudential – that do not lean sufficiently against the buildup of the financial booms but ease aggressively and persistently against the bust risk entrenching instability and chronic weakness: policy ammunition is progressively eroded while debt levels fail to adjust. A debt trap looms large.
Moving away from the debt-driven growth model of the last few decades is in my view essential in order for the global economy to truly recover from the crisis. This will require efforts from the public and the private sector alike to restore the resilience and reliability of the financial system. But no less importantly, it will require a rebalancing of economic policies so as to support greater flexibility and productivity in the real economy. In other words, a wider but country-specific reform agenda is needed.
Brilliant, Jamie, as usual. In fact, it is almost as if we are reading this very fringe, tinfoil-hatted website at any one moment over the past 6 years which has issued the same warning, after warning, after warning, virtually verbatim.
We have just one request. Next time, instead of sharing these profoundly Austrian observations with the general public, maybe you can just discuss them at the next BIS Board of Directors' meeting which consists of...
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Silly boy; there's nobody from Austria on that board!
fucking retards and the everlasting shit show gettin old gettin old... best milk bessie before sundown....
and on CNBS they're hyping a one fricking trillion dollar market cap push for Apple.
Dear God, please make those people go away. Painfully, if I can get that thrown in for free, too, pretty please?
I'm hoping that one day, Santelli is in the "World Headquarters" office sitting next to Liesman and Steve-a-rino goes off on some seriously nonsensical rant about how great everything is and Santelli looses it, starts screaming, spitting all over, tearing his clothes off and chokes him to death with his bare hands in real time.
I have visions of Liesman as a window cleaner...;)
Me too.
Hung from the rooftop, dressed in rags, and some goyim jiggling him around.
naked? just askin.
What goes on in your head?
CNBS layoffs announced.....not the blonde I hope
Unplug TV and Zollywood or keep supporting the shit show like a dumb sheep.
Note that Beijing is there, as are Brasilia and Mumbai, but Moscow is not. Interesting.
This "debt trap", is it similar to a honey trap?
Sweeter
PS They spelled "death" wrong
“A debt trap looms large.”
All going to plan then... as explained here.
http://philosophyofmetrics.com/2014/11/03/a-time-to-harvest/
Interesting to see the biggest architect and the proponent of fiat scam lamenting over debt trap.
But seriously now, all those FEDs, ECBs, BISes and other entities crafting smoke and mirrors are becoming irrelevant. The real game changer is the East and the fundamental change in economic and monetary paradigm. Not because they want to but because they'll have to.
It is the time of short term gains....all will head for the exits and it will be brutal!
OT
A bunch of writers at CNBC.com have been let go as the company continues its effort to transition the web property to one that better integrates CNBC's video content.
Sources tell Business Insider *eight people may have been laid off.
Brian Steel, a spokesman for CNBC, confirmed that there had been personnel changes at the company.
"The total bloodbath was unexpected," said one source close to the situation. "They pushed out a lot of loyal, very qualified people."
In other words, CNBC employees are just finding out about this as it happens. Those who were laid off were called into HR one by one.
"It was like watching people get executed," the source said.
It's a clear sign that CNBC is trying to change. The company just brought back John Melloy, who left the company to become CEO of Stocktwits.com.
It also hired Eric Chemi, former head of data and research at Bloomberg.
http://www.businessinsider.com/layoffs-at-cnbc-2014-11
Who they really need is Jake Meth, the communications guy from the Council on Foreign Relations.
Jake Meth looks like he's been taking acid
https://twitter.com/jakemeth
The latest Tweets from Jake Meth (@jakemeth). Communications Coordinator @ CFR_org.
Every opinion is my own.
Holy sheeeeit.
In my day, one would have been let go for putting up a picture like that while trying to hold a responsible job
Then again, times have changed.
Who said anything about the CFR being responsible?
Bozo's Law: Assume
"Jake Meth looks like he's been taking acid
https://twitter.com/jakemeth"
They needed someone the Twitter users could relate to.
Presumably Joe Kernan wasn't in CNBC latest chop? Mores the pity.
I can deal with a lot of shit but stuttering Joe ain't one of of of of of of of of them.
Just wait until you see what their proposed solution is to this "debt trap"
Sounds like Econ 101. Profound!
The actual answer is for financial assets and real assets to come back into balance and the only semi stable path for that is gold. Liquidate all float scams (bubbles they've created) like AMZN and NFLX, raise physical cash and buy physical gold. The abuse of the money supply is at the heart of the rot of the global economy. When the system is designed for those that create no value at the expense of all who do (which is what the current TBTJ monetary system is all about), it is destined to fail... Rather than a 2% inflation target, have 2% wealth tax (globally if necessary so capital cannot hide). Everyone, even those who have amassed massive wealth, should have to add value to society. If TPTB cannot generate 2% value a year to sustain their worth, better that wealth get redistributed to someone who can...
Awww, it thinks government can "add value to society". How cute.
Not what I said. I am simply suggesting that a SMALL tax on wealth is efficient as it forces wealth to be productive as well and to INVEST (and in replacement of the "INFALTION" objective which is simply a tax by the financial sector). Unless and until there are no taxes and no government, some balance between wealth and income tax (especially when financialization has driven financial wealth parabolic) is better suited to ensuring capital is deployed into productive uses... I'd rather have the highest powered incnetive to create and capture value in the current period (lower income tax) and offset it by a very modest tax on prior accumulated wealth (which would still have it last 2 generations... If no one in the family is doing anything of value for two generations, they got bigger issues)
"it forces wealth to be productive"
It will more likely encourage wealth to relocate to where it's better treated.
Where's that small south-east mediterranean nation with special dietary requirements on that list?
Injecting the Taper worm into everybody's asse(t)s..
Please excuse me while I fart.
pork fried rice? or beer and pickled eggs?
Never mind these .
King Storm , King Desert and King Lightning .
See the Kings in winter .
Things are actually looking up . See
https://www.academia.edu/9204956/Slingshot_Atmospheric_Rivers
https://www.academia.edu/9304658/Optimal_Deserts
https://www.academia.edu/9306394/Optimal_Lightning_
This article describes in "perfect detail", the art of Jawboning. The problem with Jawboning® is that it's radioactive.
Jawboning is the quantum equivalent of a vast amount of(man made) high gamma emitters. When politicians and central banksters "Jawbone", they're really just talking to eachother.
Banks lend to each other, and large macro institutions, that are basically banks in their own right. (semantics)
When in history have you ever seen commodity prices so depressed, and equity markets so levitated?(Rome)
The $usd isn't strong... Every other currency is cheap. Look at the prices you pay for goods and services...Then tell me the $usd is strong.
What happens when Asia starts devaluing to counter the BoJ easing? The asian markets need $usd to transact business through credit channels and loans. Emerging markets will have to pay even more for credit, which means higher terms of trade and risk.
What happens if the Fed. tries to print more money with the the deficite shrinking? That's monetizing debt in my book.
No matter the outcome I see stagflation, or deflation. The consumer is pushed to the limit, and the " Hunger Games" are just getting started.
Yen, always appreciated your comments. There is only 1 way. Real assets and financial assets will come back into balance. EIther through collapse of financial assets or revaluation of financial in real (gold) terms that then carries through to currencies (RMB would appreciate, USD weaken to reflect actual value flows rather than exhoritant privilege). TPTB fighting it hard right now, but once the collapse starts, they will have no choice.
Thanks for your kind comment. Yes, you're absolutely correct.
The collapse is already taking place. As Asia and the BRICs are forced to assume more risk through $usd strength. (less credit) Asian markets and BRICS want to compete. How can they compete if their cost of credit rises?
They can't devalue to stay export competitive, and they can't increase production because of tighter credit via exchange rates.(stronger dollar)
How can they compete if their cost of credit rises? - leave dollar to die alone
What would be their alternate lending/funding source? ;-?
Debt Bomb (classic): http://www.youtube.com/watch?v=GXcLVDhS8fM
Better yet: http://www.youtube.com/watch?v=y7o9p0fP6cQ
" This will require efforts from the public and the private sector alike to restore the resilience and reliability of the financial system. "
Yeah well why didn't these fucking geniuses think of this back in 2008? It's too late. This bitch has to crash and burn now. Bring it on.
High-wire act for professional scamming banksters.....kids do not try this at home!
I wonder when this bomb will debtonate?
Having said that, the real question is what happens when this debt goes up in smoke and only real people and real assets are left?
Ye Olde semi-informal LUNCHEON SPEAK concession. NICE!!
Let's throw a crumb of conscience at the SHEEP, make them feel we can relate to the misery.
He who laughs last . . . .
Very difficult to refrain from using my trademark , FUCK & CUNT, Oops.
I'm wondering why the Financial markets have not blownup yet.
Look at the ‘traditional’ stuff that’s been cancelled! Consider what would happen if the OLD Ways came back:
1999 Glass/Stegall gutted, cancelled. Comml banks can use depositer funds for speculation;
2001 ClearingHouse review of Security on Derivatives shelved. CounterParty Risk ignored;
2002 Issuance of Derivatives contracts goes wild, no clearing-house collateral rules needed;
2003 Mark-to-Market cancelled. Investment ‘mistakes’ don’t get reported or used in Financial
statements. Losses stay SECRET!
2004 Zero% interest rates on Federal Debt explained as GOOD!
2005 Bankruptcy laws changed. CounterParty failures superior to Depositer losses.
2008 Banks get Bailed out by Treasury/Fed-Reserve for their Stupidness. TBTF widely believed.
Huge failures in Collateral Chains IGNORED;
2009 European problems become much more visible, even Germany violated Maastrict reporting levels;
2010 Federal Reserve starts buying short term Treasury debt from TBTF banks, QE1;;
2012 Obama/Eric Holder say TBTF banks Too Big To PROSECUTE.
Fed starts buying MBS crap from TBTF banks No recognition of investment quality.
Draghi has published a PLAN that ignores these issues as well as the feasibility of ever implementing it. ;
2013 Banks get penny on the $Thousand fines for Civil charges, No Criminal charges
Finally, Some good 'ol GAAP reporting would force many secrets out into the light of day, EH?
+100 Great summary of the series of ruinuos bankster actions which have caused destruction of the US and western economies.
Here is a similar list that I call the Beta Tests.
Repost.
Predatory Capitalism is action, List of the Many Banking/Financial Beta Tests;
- Bail Out
- Bail In
- QE & 5 years of ZIRP
- Ninja Loans & foreclosures
- Rehypothicated mortgages
- US Financial Schemes Damaged International Faith in USA, US Financial Markets, US Petro Dollar, and Damaged European Investors
- Retirement savings & Pension Funds Quantifiably Damaged
- No investment Interest for Savings Accounts
- US Municipalities & Counties & University Trusts Damaged
- High Gas Prices 6 years from 2008 Surplus
- EU & Euro
- Price Fixing commodities & LIBOR
- Detroit Bankruptcy was the Beta Test.
- Post Office Liabilities to Heath Care
- Sub-Prime Loans
- S&L Crisis
- Yet Neither Rs or Ds in 2 Party system take any action to address Economic, banking, Jobs, Pension, Debt issues... TPTB act like the banking theory wasn't over tuned into Neoliberal nonsense with no rules.
Banks no longer operate the same way. Target is Real Estate, Stocks, Bonds. The Inflation is in Real Estate, Stocks, Bonds. The consumer is anyone that takes a loan of any kind even for a business... the hope is that banks can take over your assets for free after creating money for free out of thin air... same with mergers and Buy Outs.
Debt overhang
Malinvestment
Broken price discovery mechanisms
In 2009 I joined/read ZH because I wanted to know where the money went. It took a while, but with a bit of study it was not that difficult to figure these things out.
And this guy gets up there and talks like this is some sort of epiphany and we are to be surprised by what he says. The arrogance and condescension is breathtaking.
sschu
Repost:
Found this and is better than a couple of his shorter versions.
Michael Hudson: Finances vs Economy, Credit vs Money [3/18 ENG] ...Sounds like lots of ZH people agree with him on Greece & Financialization of Debt & Government in order to steal the assets.
http://www.youtube.com/watch?v=JZQqrxHGcoQ Whole thing is good!
It's CYA time in the financial and banking institutions. Which means IT'S CLOSE. Max____ two years to the next meltdown. And they will all be saying, "well I warned about this" on such and such a date...
We watch what you do Jaime, not what you say. Yes, financial trouble usually comes in threes, emanating from Zionist policies of US Federal Reserve, IMF and BIS.
Like an honest arsonist warning you that your house is on fire.
Swiss rope maker :-)
https://www.shoplocket.com/products/0PwQQ-erigging-soft-shackle
Why is that Tyler consistently puts out the best, most informative articles?
Look this is about Empire & Dynasty Building.
The article seems to be written by someone who has to work within the system. I mean it is a little tame. I know it has to be narrowly focused to fit in this format and clearly the author is informed.
But look at the Roman Empire or British Empire.
#1 they have to take resources and use human labor either for production or military service, Empires must find ways to manipulate the system to come out on top, accounting fraud, theft, use of debt to force government officials to grant lands or monopolies
#2 there are many kinds of debt that can be brought up, our understanding of economics was that banks too in deposits, lent out dollars from the local economy to create capital, originally we thought this was debt free money being used to stimulate the economy
#3 Fractional Reserve Debt takes Fiat and create debt and money out of thin air for loans & investments, not only does this inflate the dollar (devalue USD), it means if the bank takes over the assets due to failure... the bank becomes richer since it now owns the assets that it created from thin air!!!
This is Financial War against Government, Households, and Businesses.
QE has enabled this process, ZIRP is Oppression, TARP is Oppression as they bailed out the Irresponsible Elite Bankers... but deeper you see the Banks don't serve the people or the government. Banks are disconnected from the Country, Government Ideals, Accounting Integrity... they only have to turn over financial transaction or create securities, buy stocks, buy bonds, buy and encourage buying of Real Estate... and they get promotions & bonuses.
Wealth has shift from Creating Capital (the old way)... now wealth is created through financializing real estate, stocks, bonds, derivatives.
Decapitalization of Industry is Key to understanding this, but also wage declines also indicate... we shifted from Industrial Capital Wealth to Bull Shit.
What a POS-looking headquarters! Looks like a giant turd was stood on its end!
No an obvious Phallic symbol
Clearly if the BIS was intended as an International Neutral Third Party ...they would not have build a clearly masculine symbol of Empire.
Excellent
Another canadian bankster
Reach for the Top!
And another zionic bankster from canada a few rows down.
Worship the mighty bis phalanx.
All hail zion.
The BIS told the populace before IT happened.
Obligation fulfilled.
We now await the denouement.
Before 1999 we had recessions that wiped out bad debt.
Since 1999, Central Banks have used cheap money policies to avoid painful recessions.
The BIS is Central Bank headquarters and is worried about all the debt in the system.
Can you make any sense of this?
Capitalism is about creative destruction.
This creative destruction mainly takes place in recessions where bad debt is wiped out and old and/or inefficient companies get wiped out creating space for the new.
Bankers are champions of Capitalism but have stopped Capitalism working especially on their own industry.
Can you make any sense of this?
Are bankers insane?
When all new money is created from debt, the end of the system is entirely predictable from the start.
This is what the end of a debt based money system looks like.
Is it just me or does the BIS building look like a modern-day Tower of Babel?